US Reporter

Netflix CEO Reed Hastings Admits the Profitability of Advertising

Reed Hastings, co-CEO and founder of the massive streaming platform Netflix, finally understood the value of advertising to the company’s earnings.

Hastings claimed that he wished the business had included advertising in its services earlier. The severe competition with other market behemoths like Facebook and Google, he said, made him too fixated. In addition, Netflix long rejected ad-inclusive subscription plans. But a few months ago, the business stumbled into some financial troubles. This forced the management to look for alternative revenue streams.

“I didn’t believe in the ad-supported tactic for us. I was wrong about that. Hulu proved you could do that at scale and offer customers lower prices. So we did switch on that. I wish we had flipped a few years earlier on that, but we’ll catch up,” Hastings said.

“After a challenging first half, we believe we’re on a path to reaccelerate growth. The key is pleasing members. It’s why we’ve always focused on winning the competition for viewing every day. When our series and movies excite our members, they tell their friends, and then more people watch, join and stay with us,” the company said months ago.

Hastings thereupon rolled out a new subscription plan with an all-ads bundle starting at $6.99 per month. Paying extra is required by those who don’t want adverts to stop their streaming. The corporation implemented this tactic in response to its significant subscriber losses over the years.

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Hastings and his realization

Hastings said that the goal of Netflix’s marketing strategy was to increase member numbers. But he said he should have paid more attention to several elements many businesses had employed. For instance, Warner Bros., HBO Max, Paramount, Disney, and Hulu have already provided their members with more affordable ad-supported subscriptions. The initiatives reportedly give businesses more opportunities to increase their revenue. In addition, the businesses could deal with the economy’s and the employees’ growing demands thanks to the increased profits.

“Our challenge and opportunity are to accelerate our revenue and membership growth by improving our product, content, and marketing as we’ve done for the last 25 years and better monetize our big audience. We’re in a position of strength given our $30 billion-plus in revenue, $6 billion in operating profit last year, growing free cash flow and a strong balance sheet,” said Netflix in April.

“The big thing that I missed is I was on the Facebook board, so I bought in for a decade to the belief that systems relying on data were going to be able to do higher CPMs than anyone else,” Hastings said.

“So Google and Facebook were going to mop up the world — and they have in non-TV advertising,” he added.

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Starting more revenue-generating projects

The gaming division of Netflix also managed to expand. The business previously announced the establishment of a game studio in Finland. For the business inside the gaming industry, this would boost the stakes. The studio’s management will be under Amir Rahimi, Vice President of Game Studios. He gushed about the initiative and his faith in it.

“This is another step in our vision to build a world-class games studio that will bring a variety of delightful and deeply engaging original games — with no ads and no in-app purchases — to our hundreds of millions of members around the world,” said Rahimi.

“It’s still early days. Creating a game can take years, so I’m proud to see how we’re steadily building the foundation of our games studios in our first year, and I look forward to sharing what we produce in the coming years,” he added.

Photo Credit: Ernesto S. Ruscio

Source: CNBC

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